State forecasts $700 million drop in revenue next year

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Thu, 12/06/2012 - 8:26am

Photo/File/AP

Revenues to the State of Alaska are expected to decline next year by about $700 million, the Department of Revenue said Dec. 4.

Total revenues, which included restricted revenues and other income including federal funds, are expected to drop from $15.3 billion in the current fiscal year to $14.6 billion next year, state Revenue Commissioner Bryan Butcher said.

Meanwhile, there are increasing concerns over the rising cost of a state petroleum investment incentive program where companies are allowed to credit 20 percent of capital investments against production tax liability and explorers are allowed to get credits for as much as 60 percent and 70 percent of their costs.

The tax credit program cost will exceed $1 billion a year by 2014, according to estimates, up from about $850 million this year, Butcher said.

The new estimates predict state unrestricted oil revenues will decline by $510 million, from $6.9 billion in the current 2013 fiscal year to $6.39 billion in the 2014 fiscal year that begins July 1, 2013.

“The drop in estimated state income is due partly to a small projected decline in Alaska North Slope oil prices, a expected decline in production from an average 553,000 b/d to 519,000 b/d, and an anticipated increase in industry investment tax credits from $850 million in the current year to $1.015 billion next fiscal year,” Butcher said in the briefing.

Producing and exploring companies are allowed to credit expenditures against the state production tax. If an explorer has no production the company is refunded directly by the state.

The state Department of Revenue traditionally issues its annual revenue and production forecast in early December prior to the governor’s release of a proposed state budget on Dec. 15, which is required in the state constitution. An updated short-term revenue estimate is also usually released in April.

About 90 percent of Alaska’s state budget is paid for by oil taxes and royalties.

The Revenue Department is also forecasting continued declines of North Slope production in its annual production forecast released Dec. 4 at 5.4 percent annually over the next five years.

That would bring oil shipped through the Trans Alaska Pipeline System down from an estimated average of 553,000 barrels per day in the current state fiscal year 2013 to an average 443,000 barrels per day in fiscal year 2017, state Revenue Commissioner Bryan Butcher said in a briefing.

The department is also adopting a new procedure for its long-term revenue forecasts which will include a greater degree of risk assessment and will also involve the state Division of Oil and Gas, Butcher said.

The new method will have no impact on production forecasts for the next two or three years, and is aimed more at achieving more realistic long-term forecasts, the commissioner said.

The big increase in the tax credit expenditure next year will come from producing companies crediting capital investments, mostly for field maintenance, against the tax.

In recent years, cash payments to exploration companies who are without production tax liability has ranged between $360 million to $400 million per year.

The state’s industry incentive program is considered the most generous in the U.S. and is largely responsible for a modest uptick in exploration drilling in the state, but Butcher said the department may recommend changes to the tax credit scheme. I

If they are made they will be a part of Gov. Sean Parnell’s proposed revisions to the state production tax law, which are expected to be introduced this spring when the Legislature convenes its 2013 session in Juneau.

State legislators are concerned about the increasing cost of the credits as state revenues decline, and about results of the program. “We have made no decisions at this time on any changes,” Butcher said.